Central Banks Won't Kill the $100 Bill: It's a $2.5 Trillion Interest-Free Loan
Cash use is declining, yet the dollar in circulation is at a record high. Central banks have an incentive to keep printing $100 bills: this money is effectively a $2.5 trillion interest-free loan to the U.S. government, at the cost of enabling global money launderers.
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Money laundering scale hasn't changed in three decades
The most commonly cited estimate for money laundering is 2% to 5% of global GDP annually, which at today's roughly $100 trillion GDP would be $2 trillion to $5 trillion. This figure comes from a rough estimate by former IMF chief Michel Camdessus in the late 1990s, and no one has since provided a better answer. Oliver warns that what should be more alarming is that this percentage hasn't changed in thirty years: decades of anti-money laundering efforts haven't shrunk the criminal economy, only barely kept it from growing faster than the overall economy.
— Oliver BulloughBanks spend $200 billion a year on AML with near-zero effect
Banks' complaints about KYC costs are not just whining. In 1970, the U.S. passed the Bank Secrecy Act, and in 1989 the FATF globalized anti-money laundering norms, forcing banks to hire compliance teams and install AI monitoring software. LexisNexis estimates global AML compliance costs about $200 billion a year—enough to end world hunger and provide clean water to everyone. But the system generates a huge number of suspicious activity reports each year, and launderers still stay ahead of regulators. The problem isn't that banks aren't trying; it's that the whole system is costly, has weak feedback, and almost no one is held accountable for results.
— Oliver BulloughTrade-based laundering is an order of magnitude larger than cash smuggling
Cash smuggling makes laundering within the banking system look small, but the bigger chunk doesn't involve money at all: value is hidden in goods. Mexico receives about $25 billion in cash annually, while U.S. exports of John Deere and Caterpillar farm equipment become the goods that drug cartels get in return; European luxury goods flow to China, and from China drugs and other goods are imported, with triangular trade settled through misinvoicing. Global Financial Integrity estimates such trade-based laundering at about $1 trillion a year. A million-dollar watch worn through customs is far easier than carrying a million in cash.
— Oliver BulloughThe Vancouver model: Chinese cash demand meets drug cash supply
China limits each person to $50,000 in annual foreign exchange, yet wealthy Chinese have large spending needs abroad. The Vancouver model matches this demand with the dollar cash supply of drug cartels: cash bags are handed to Chinese gamblers outside Canadian casinos, the money is lost at the tables, and the gamblers owe a debt; this debt is offset by yuan transactions on the Chinese side and subsequent drug sales. Viewed alone, the gambling looks like a loss, but across the whole chain, it's a triangular settlement that simultaneously repatriates drug money and moves Chinese capital out. The model has since expanded globally, with luxury goods, daily necessities, and drugs all serving as vehicles for moving value.
— Oliver BulloughVAT loophole lets the same goods repeatedly extract 20%
The EU's zero-rated cross-border transactions were meant to avoid tax authorities checking each other, but they became an ATM: goods entering the UK from Ireland don't incur VAT, and when sold to a related shell company, 20% is added; that shell company exports the goods back to Ireland and can claim a refund from the UK tax authority for the 20% that was never paid. This circular movement is why it's called carousel fraud. The UK largely suppressed it with multi-agency crackdowns, but fraudsters then moved to mainland Europe, where it now amounts to about €50 billion a year, spreading from Lithuania to Portugal. Criminal organizations have no upper limit on cooperation: the more they cooperate, the bigger the scale.
— Oliver BulloughNo one uses cash, yet central banks print record amounts
In the digital payment era, cash transactions have fallen to about 9% in the UK and 13% in the US, so by common sense, paper currency supply should shrink. After Bank of England Governor Andrew Bailey articulated the banknote paradox in 2009, the phenomenon intensified: the value of UK banknotes in circulation doubled, and the US is close to $2.5 trillion. Central banks' explanation of 'store of value' doesn't hold—surveys show the average American adult has only a few hundred dollars on hand, while per capita currency in circulation exceeds $7,000. The Fed estimates about 65% of U.S. banknotes are abroad, but that just pushes the problem across borders: no one knows who actually holds these notes.
— Oliver BulloughThe $100 bill is a $2.5 trillion interest-free loan to the government
Seigniorage shouldn't be understood simply as profit from printing money: a $100 bill costs 9 cents to produce, but it isn't 'sold' to you; you can redeem it for goods at face value at any time, so cash held by the public is essentially an interest-free loan. With nearly $2.5 trillion in circulation, the U.S. government gets interest-free funds equivalent to about 6% of its national debt; federal interest payments now account for about 19% of the budget, and if that $2.5 trillion had to pay interest, it would add about another percentage point. This is why central banks are reluctant to discuss abolishing the bill.
— Oliver BulloughAML incentives are inverted: more reports, fewer crimes prosecuted
Suspicious activity reports were meant to be real-time intelligence for law enforcement, but reality is the opposite: banks hire thousands of compliance officers to file reports, law enforcement lacks resources to read them, and most reports go into a black hole; banks can be fined billions for missing a report, but get no reward for doing it right. Side effects include debanking—many suspected individuals, including many Muslims, have their accounts cut off by financial institutions. The guests' solution isn't to hire more compliance officers, but to generate fewer reports, read them seriously, and actually prosecute financial criminals, raising the cost of laundering rather than drowning everyone in paperwork.
— Oliver BulloughIn their own words · checked verbatim
But the most widely used estimate is that We're talking about between 2% and 5% of global GDP. And since global GDP is approximately $ 100 trillion, that means between $ 2 and $ 5 trillion being laundered globally.
Oliver Bullough5:09
Cash is a hugely significant tool for moving illicit wealth around the world. And even that is dwarfed by what we refer to as trade-based money laundering. It is essentially a way of moving value around the world, not in the form of money at all, but in the form of stuff.
Oliver Bullough12:14
So there is very little demand for cash from society. So you would expect, therefore, the supply of cash to be collapsing. And yet at the same time that the demand is very low, For some reason, supply is very, very high and getting higher all the time, consistently, almost everywhere.
Oliver Bullough27:27
if you take a $ 100 bill out the bank, you're not actually buying that $ 100 bill because you can sell it back at any time for the same amount that you bought it for. So actually, it's an interest-free loan to the government is what it really is.
Oliver Bullough32:31
if the US stops producing its $ 100 bill, and I wish it would, I don't think that there is anyone really, who would be inconvenienced by the lack of $ 100 bills except the bad guys.
Oliver Bullough35:34
Criminals have always liked to stack different techniques on top of each other. And so, yeah, cash remains the most useful criminal tool at a street level. But it's bulky, it's not secure. It's kind of annoying and smelly. It's annoying to count and so on. So if you can get away from using that as quickly as possible in order to move it around the world, that's where crypto comes in and is super useful.
Oliver Bullough39:40
Instead, we have a system that piles a huge amount of paperwork on financial institutions and a huge amount of expense and occasionally fines them for their trouble, but doesn't really do anything to stop financial crime. And that's kind of, as we say in Britain, ass backwards.
Oliver Bullough48:52
Figures
| Global AML compliance annual cost | about $200 billion | 9:10 |
| Drug cash inflows to Mexico | about $25 billion/year | 13:17 |
| EU carousel fraud scale | about €50 billion/year | 23:25 |
| Cash share of transactions | UK about 9%, US about 13% | 27:27 |
| Total U.S. currency in circulation | close to $2.5 trillion | 27:27 |
| Fed estimate of U.S. banknotes held abroad | about 65% | 30:28 |
| Cost to print a $100 bill | about 9 cents | 32:31 |
| U.S. federal interest payments as share of budget | about 19% | 33:33 |
Glossary
- seigniorage
- The profit from issuing currency; in modern terms, it can be seen as an interest-free loan from currency holders to the government.
- trade-based money laundering
- Hiding and moving illicit funds through misinvoicing, transshipment of high-value goods, and similar methods.
- Vancouver model
- A laundering loop that uses casinos and debt to match Chinese wealthy individuals' cash demand with drug cartels' cash supply.
- banknote paradox
- The phenomenon where everyday cash use declines but the total value of banknotes in circulation keeps hitting new highs.
- SAR (Suspicious Activity Report)
- A form financial institutions file to report suspected money laundering or criminal transactions; currently so numerous that no one reads them.
How to listen
Bank compliance, cross-border payments, and monetary policy professionals, as well as anyone curious why abolishing the $100 bill is so hard.
The first about 4 minutes are a live event ad and small talk; you can jump straight to 5:09.